The Financial Times:
Donald Trump has pushed US tariffs on foreign goods to the highest level since before the second world war as he enacts his sweeping protectionist agenda.
The wall of levies announced by the president since he took office again in January has taken the country’s effective tariff level to an estimated 17.3 per cent, according to Yale University’s Budget Lab.
The figure, incorporating the latest deal agreed with the EU at the weekend, brings the total US levies close to the 20 per cent last seen during the widespread tariff increases in the years after the 1930 Smoot-Hawley Act.
Trump’s time in office has been marked by tariff threats followed by climbdowns and reversals, but he has by this point made agreements that lock in high levies on almost 45 per cent of all US imports. That tariff wall threatens to trigger a reordering of global trade.
“Trump has engineered a new era of US trade protectionism that will eventually reverberate through the entire global trading system,” said Eswar Prasad, a professor of trade policy and economics at Cornell University.
This EU “deal” is really just a boot licking exercise to let Trump have a “win” even though it is anything but. However, as Paul Krugman writes, it comes with a cost.
First, here are the details on the “deal”:
Trump has now announced a trade “deal” with the European Union that looks a lot like the “deal” he made with Japan. I use scare quotes because there is little sign of a quid pro quo. The United States is imposing a 15 percent tariff that is lower than previously threatened, but still vastly higher than we had before Trump. Overall U.S. tariffs seem likely to settle roughly at the level that prevailed after the infamous Smoot-Hawley tariff of 1930.
In return we got a vague promise of higher European investment in the United States. When Japan made a similar promise last week, administration officials asserted that this would mean hundreds of billions flowing into rebuilding U.S. industry. Japanese officials, however, say that the money will consist almost entirely of loans and loan guarantees. This strongly suggests that Japan will, if it does anything at all, simply be sticking Trump’s name on money flows that would have happened anyway. There’s every reason to suspect that the same will be true of whatever the EU does.
And like the Japan deal, this deal seems to place lower tariffs on cars made in Europe, which have very little U.S. content, than on cars made in Canada, which contain many American parts. Add in the punishing tariffs on steel and aluminum, and Trump’s trade policy seems, if anything, to be tilting the playing field against U.S. manufacturing.
When I point out that Trump’s idea of trade deals seems counterproductive even in terms of his claimed goal of boosting manufacturing, I get some pushback from readers along these lines: “Oh, yeah? If you’re such an expert on trade negotiations, tell me what deal you think you could have made.”
OK, I can answer that. If I had been in charge of negotiating with the European Union, I would have been able to get a deal with the following components:
· Very low tariffs on U.S. exports of manufactured goods to Europe, on the order of 1 percent
· Near balance in bilateral trade, with U.S. exports to Europe close to 90 percent of our imports from Europe
· U.S. companies allowed to operate freely in Europe, earning hundreds of billions a year in profits
· European corporations investing more than $150 billion a year — real investment, not loans — in the United States
Why do I believe that I could have negotiated a deal like that? Because that’s what U.S.-EU international transactions actually looked like in 2024. So that’s what we could have gotten by doing nothing.
As he points out Trump doesn’t understand that trade involves services as well as goods and the US runs a big surplus in the former so it balances out. All he knows is cars and Iphones … and even then he doesn’t understand it.
But if the US-EU trade relationship was more or less OK last year, why did Trump impose huge tariffs and leave many of them in place even after the so-called deal? Because he felt like it. You won’t get anywhere in understanding the trade war if you insist on believing that Trump’s tariffs are a response to any legitimate grievances. And he failed to gain any significant concessions, mainly because Europe was already behaving well and had nothing to concede.
So we have a shitty deal that actually disadvantages American manufacturers and consumers. No wonder the EU was willing to sign and move on.
However, as I mentioned earlier, there is a cost and it’s a big one that should be taken into consideration as well:
So was the US-EU trade deal basically a nothingburger? (Substitute some European food for burger, if you like.) No, it was a bad thing, but mainly for political reasons.
1. Trump probably believes he won, which will just encourage him to persist with his trade war.
2. This will hurt the world economy, with the burden falling mainly on lower-income Americans. The Yale Budget Lab estimates that Trump’s tariffs will leave the U.S. economy 0.4 percent poorer in the long run, which is very close to my own back-of-the-envelope calculations. But the tariffs are basically a sales tax that will reduce real income for poor and working-class families by about 1.5 percent, even as cuts in other taxes raise income for the wealthy.
3. European negotiators didn’t make many substantive concessions, but they pretended to give ground — and they didn’t retaliate, even though they were clearly entitled to do so, because the U.S. has just gone back on all its solemn past agreements. This makes the EU look weak, which is a bad omen for its ability to deal with real challenges, starting with helping Ukraine.
Two less discouraging aspects of what just happened: First, Trump appears to have backed down on the idea of treating European value-added taxes as an unfair barrier to U.S. exports (which they aren’t, but facts don’t matter here.) So that’s one potentially awful confrontation avoided, at least for now.
Second, if this trade deal was in part an attempt to drive Epstein from the top of the news, my sense of the news flow is that it has been a complete flop.
Still, if I were a European I’d be very angry at anything that even looks like Trump appeasement. The EU is an economic superpower, especially if it allies itself with the UK. It needs to start acting like it.
Giving him more power is hurting the world in many ways, not just economically. It’s a HUGE mistake to keep appeasing him. He’s lost all restraint as have his henchmen and accomplices.
Once again, the institutions are failing us.
